Sony to lose $1.71B through March '07 due to PS3

[GePap]

Originally posted by Asher
That said, it looks like the Wii games are more comparable (and compete with) the Xbox Live Arcade games over the Xbox 360 games. XBLA games are cheap, simple, and basic...basically what Nintendo wants?

Why not? They are the only ones making a profit from their hardware in this business. Why shouldn't they continue the winning formula? After all, they are solely a gaming company, not like Sony or Microsoft, which can subsidize their loses with money from other areas, or absord a huge loss because of how big they are.

Hurray for Nintendo

[Asher]

Actually the Xbox 360 is now turning a profit on each unit sold -- it only costs $325 to manufacture the 360 now.

In early 2007, much smaller/cheaper revisions of the 360 chips will come out also to further reduce costs.

Why shouldn't they continue the winning formula?

I take it you missed the chart showing Nintendo's console sales trend. That's the first hint that continuing that formula may not be the best idea, longterm.

[Asher]

Originally posted by Elok
Small Arms looks like an example of the genre, yes. I'm not buying this crap about voice links and picture-in-picture though. I can't imagine that substituting for physical proximity. At least, not among casual gamers. By "casual gamers," I mean the sort who say, "that looks fun, I think I'll play it," as opposed to talking about polygon count and texture shading and crap. The kind of people who play SSB, and buy the Wii, in other words. Really, who the hell wants to play Mario Kart drinking games over LAN?

You seem to think there's no market for such gameplay, but I'd bet you there's more online Halo 2 gaming going on right now than local SSBM.

There's 4+ million subscribers to Xbox Live...and it's growing. Obviously people like it. And you'd be surprised, a ton of casual gamers are on XBL -- especially girls who really like the social aspect of it.

[GePap]

Originally posted by Asher

Why shouldn't they continue the winning formula?

I take it you missed the chart showing Nintendo's console sales trend. That's the first hint that continuing that formula may not be the best idea, longterm.

Which is why Nintendo seems to be trying to change the market it aims at, trying to widen its markets by having less complex, more family friendly, cheaper consoles that might be the first choice of parents, or those who are generally not interested in the huge, ocmplex graphic heavy games that are the staple of consoles today.

I think they will succeed in that.

[MRT144]

Originally posted by Asher

Why shouldn't they continue the winning formula?

I take it you missed the chart showing Nintendo's console sales trend. That's the first hint that continuing that formula may not be the best idea, longterm.

ok wall street asher

[Asher]

Originally posted by GePap
Which is why Nintendo seems to be trying to change the market it aims at, trying to widen its markets by having less complex, more family friendly, cheaper consoles that might be the first choice of parents, or those who are generally not interested in the huge, ocmplex graphic heavy games that are the staple of consoles today.

I think they will succeed in that.

Why do you think that?

They tried that last generation and it failed. Hell, they were even at less of a disadvantage with graphics and was even cheaper than the Wii, yet it still failed.

It's the gameplay that matters, and Nintendo has been failing to innovate with it and it's biting them. Even the current Wii games -- none of them innovate, even though they have a "revolutionary" control scheme. Take Red Steel, for instance...you're going to see a LOT of games like that trying to use a gimmick control scheme as the core of gameplay instead of doing something truly innovative and appealing.

Nintendo has a history of screwing third party developers in terms of assistance in development and in terms of competing with them on the console for game sales. If Zelda or SSBM comes out, nothing else will sell that month. The whole market is a one-trick pony for Nintendo franchises, and unless they make some fundamental changes to their business that will not change.

[Asher]

Originally posted by MRT144
ok wall street asher

Statistical analysis.
Common sense.
Consistent linear downward trend in sales hinting at flaw in "formula".

[MRT144]

the problem is, youre mixing up consumers desire to buy a product with the actual performance of the company and future performance. Most people's purchasing decisions arent made based on a company losing market share, the loss in market share is a result of people's purchasing decisions.

therefore, who cares if nintendo isnt doing as well?

[lord of the mark]

Originally posted by Asher

I'm going to end up with all three consoles again (likely a Wii as a Christmas gift from the SO), but there's nothing wrong with acknowledging which is the superior outing this time around.

From a technical standpoint as well as a business standpoint.

Hell, the 360 is outperforming the PS3 games and is already in the black for a lot lower price than the PS3. Sony loses several hundred dollars for every $600 PS3 sold for less in terms of game capabilites -- makes me scratch my head. It must be all of Sony's elegant engineering...

Does it? Heres a discussion of the numbers behind that assertion.

http://www.philsteinmeyer.com/

[Asher]

Originally posted by MRT144
the problem is, youre mixing up consumers desire to buy a product with the actual performance of the company and future performance. Most people's purchasing decisions arent made based on a company losing market share, the loss in market share is a result of people's purchasing decisions.

therefore, who cares if nintendo isnt doing as well?

The problem is you're discussing a completely different argument.

We were discussing if their strategy is going to be successful, not consumer perceptions.

That said, there are a lot of consumers who are very unhappy with what they got with the N64 and then the Gamecube, which makes them less likely to buy another Nintendo console. Which partly explains the dropping sales...every generation seems to get worse in terms of number of quality games for Nintendo.

[Asher]

Originally posted by lord of the mark
Does it? Heres a discussion of the numbers behind that assertion.

http://www.philsteinmeyer.com/

Can't view it at work.

Is it a technical discussion?

[lord of the mark]

Originally posted by Asher

Can't view it at work.

Is it a technical discussion?

"Is Sony Losing Their Shirt On Each PS3?
November 17th, 2006
There’s been a lot of industry speculation that Sony is losing a lot of money with each PS/3 sold.

This article claims the the total cost of the main unit alone, EXCLUDING controllers, cables, packaging and any profit margin for the retailers (i.e. Wal-Mart’s gotta make money to sell these things), is $805 to $840 (for the low and high end PS/3’s respectively). Shipping cost to the retailers is also apparently excluded. Adding in these costs, (even with a very modest assumed retailer markup) and you get to about $900-$950, which, with the current retail prices at $499 and $599, implies a $300-350 loss per unit.

I’m not an expert in component pricing and manufacturing costs, but still, I’m skeptical.

Let’s look at some specific prices in that cost estimate:

Manufacturing Costs: $40
Really? Assuming the components come pre-assembled as modules (very likely), then assembling the parts is sort of like putting a Lego toy together - plug everything together, screw a few things together, and done. I’d make a wild guess that a trained worker could assemble 2 units an hour - that’s probably very conservative. The units are apparently being manufactured by a Taiwanese company (Asustek). By my wild guess, that would seem to imply labor costs of about $10/hour, or roughly $5/unit. If Asustek in turn pushes the manufacturing to a plant in South China, it would be even less. Note that in the second table, they estimate XBox 360’s manufacturing cost at only $6.10 per unit. No explanation is given for the enormous discrepency between the systems.

Enclosure: $31-33
Really? The plastic/alloy box around the PS/3 costs $31 in million unit bulk order pricing? I doubt it. Considering you can buy computer cases, at quantity 1, at retail price of $15 after rebate from NewEgg, I doubt Sony is paying more than $10-15 for the enclosure

Power Supply: $37.50
Hello, I’d like to order 5 million power supplies - how much will that be, per? $37.50? Wait a sec - I can buy a SINGLE 400 watt power supply at NewEgg for $20. You’re telling me my five million unit order is at almost twice that, per unit? Yes, I know the unit in the PS/3 is a ’slim line’ power supply, but I hardly think that accounts for this price estimate. Thanks, but I’ll find a different supplier.

Other Components and Manufacturing: $148
Weren’t we already charged for manufacturing? What are these ‘other components’? The table already appears to list all the major chips, memory, hardware, optical and hard drive…

Combined price of 4 primary chips (graphics, CPU, I/O, ‘Reality Synthesizer’): $305
OK, here’s the deal with technology - I think it applies well to these chips, and to a lesser extent to the other items above.

Chipmaking has 3 main costs:
1) R & D - How much to invent it? This is basically a single large lump sum invested up front.
2) Manufacturing ramp-up - Initial yields are low and it takes time and money to figure out how to manufacture items in bulk. Again, this is basically a single large lump sum invested up front.
3) Per unit costs - Once you’ve got it developed and you have your manufacturing going, how much does it cost to stamp out each chip? This cost declines slowly over the life of manufacturing, but is much more stable (per unit) than the first two costs.

Now, a chipmaker has to make a profit per chip. Clearly, that entails charging more than the per-unit cost in item 3, but it also involves making enough money over the life of the chip run to recoup (and hopefully make a profit on), items 1 and 2.

I have no doubt that it cost Sony and their partners an enormous sum to develop these chips and their manufacturing processes. But I really doubt the true per-unit cost (i.e. item 3) is anywhere near $300 for the lot of them. Perhaps whoever created the table in question tried to amortize a significant chunk of items 1 and 2 against the first few hundred thousand chips off the line. But that just seems wrong to me - Sony, internally, is probably amortizing those costs against a projected run of 50-100 million PS/3s, lifetime (maybe more). Taking a very wild guess, I’d say the $305 figure is off by a factor of 2 or so.

To repeat, I am NOT an expert in these things, and may be wildly wrong. But it seems that analysts are applying cost pricing roughly equivalent to building a single machine with parts from NewEgg or Fry’s, rather than bulk pricing, bulk manufacturing, and amortizing R & D cost over 50-100 million PS/3s that will likely be built, lifetime.

How much money is Sony really losing, per unit? I don’t know, and perhaps Sony doesn’t really know either. Computing a per unit cost on the first batch of PS/3s is a bit of a silly exercise anyways. They’ll probably lose money in the PS/3’s first year, due to all that R&D, low software sales to a small initial base of PS/3 owners, and declining PS/2 sales. But my wild guess is that Sony will make a lot of money over the course of the PS/3 generation, and also will likely make more money than Microsoft. "

[Asher]

Kind of a nonsensical argument, considering Sony themselves are projecting to lose $1.71B through March of next year, attributing component costs.

I don't know why he thinks a lot of the stuff he does, but it's just bizarre to me. For instance, $300 in semiconductor costs is very believable considering the stories we already heard a long time ago about yield problems on Cell...and in general considering that these are big complex chips and Sony, being stubborn as they are, insists on manufacturing them themselves even though they have no experience with such large chips.

The powersupply in the PS3 is a compact "noiseless" one, which is a lot more expensive than the cheapy 400W ones you find in the bargain bin he references.

[lord of the mark]

Originally posted by Asher
Kind of a nonsensical argument, considering Sony themselves are projecting to lose $1.71B through March of next year, attributing component costs.
.

"They’ll probably lose money in the PS/3’s first year, due to all that R&D, low software sales to a small initial base of PS/3 owners, and declining PS/2 sales. But my wild guess is that Sony will make a lot of money over the course of the PS/3 generation, and also will likely make more money than Microsoft. "

[Asher]

Why does he think R&D costs occur now?

Sony's R&D cost was during the, you know, R&D of the console -- over the past 4 years. The cost now is due to components. The R&D is done with.

This guy is clueless.